On Monday, the world’s No. 1 smartphone and tablet display maker, and a key Apple supplier, revised down its annual net profit target by 15% from its outlook released March 19, the day of its listing.

Reuters

The guidance cut sent the company’s shares down as much as 14% to ¥688, with investors upset that the earnings outlook had changed so soon after the IPO.

“From one perspective, it may appear that Japan Display released its original earnings outlook to justify its ¥900 IPO price,” said Takuya Yamada, a senior fund manager at Astmax Asset Management, which has around $1.1 billion in assets under management. Originally, Japan Display had forecast that its net profit would rise nearly three-fold for the fiscal year ended March compared with the previous year.

Japan Display, created two years ago from the liquid-crystal-display units of Hitachi, Toshiba and Sony, attributed the revision to shipment delays toward the end of the January-March quarter, after the IPO had been priced in early March.

More than the timing of the earnings cut however, potentially more discouraging to investors is another reason Japan Display gave for putting off shipments: tough price negotiations due to lower prices for smartphone displays in the medium range.

Japan Display shares have never traded above its ¥900 IPO price due to worries about falling prices and growing competition in the market, although most brokerages still have a Buy rating on the stock.

Company officials and analysts say smaller displays are customized and it’s difficult for rivals to catch up to Japan Display’s technologies for slim, power-efficient “low-temperature polycrystalline silicon” panels. But skeptics warn that Chinese smartphone makers are quickly driving down prices, while competition mounts from other Asian rivals such as South Korea’s LG Display and Taiwan’s AU Optronics.

For example, prices of 4.3-inch LTPS display for smartphones (with resolution of 1280 X 720 pixels) fell 36% at the end of last year from early 2012, according to research firm NPD DisplaySearch.

“With such price volatility, investors are skeptical how long the good times will last,” Mr. Yamada said.
Japan Display is looking to expand sales to lower-priced markets and has invested in a Taiwanese company, hoping to learn the agile, cost-cutting ways of its Asian rivals.

But to lure back investors, fund managers like Mr. Yamada say Japan Display will need to provide more earnings stability and evidence it can respond to the growing risk of price erosion.